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SLO Growth

San Luis Obispo prides itself on marching to a different drummer. The small college community (pop. 43,050) on the central California coast has long been a haven for the so-called alternative culture, though a recent influx of people seeking relief from the problems of the state's major population areas has changed the tenor of the town. The average annual family income, for example, has risen to nearly $61,000, according to the official city website.

Still, San Luis Obispo retains a unique character that sets it apart from other places. And perhaps nothing demonstrates this more clearly than the fact that where most communities have struggled to revitalize downtowns that lost business to the malls, San Luis Obispo's downtown was doing fine — it's the mall that needed rescue.

Specifically, the Central Coast Mall had been reclaimed by its lender after a novel approach to anchoring had failed. Opened in 1986, the enclosed property featured a conventional department store at one end but a hotel at the other. Both the department store, part of the Gottschalks chain out of Fresno, Calif., and the hotel, an Embassy Suites, were doing well, but the shops between were falling like dominos. By the late 1990s, 80% of the inline space was vacant.

In stepped MBK Southern California Ltd., one of two affiliates of Irvine, Calif.-based MBK Retail. According to MBKSC president Andrew Trachman, the company quickly recognized that the property represented a great opportunity for redevelopment, for despite the success of its downtown, the city was seriously underserved by mainstream retailers.

“The Main Street approach everybody is trying to create exists there in a very organic sense,” says Trachman, pointing to a thriving downtown retail scene featuring dozens of specialty and soft goods retailers from national chains such as Gap, Victoria's Secret, Sunglass Hut and Structure to numerous successful local businesses. Yet for many commonplace items, residents had to drive 50 miles or more.

Thus was born the idea to transform the mall into an open-air community shopping center with multiple promotional anchors. The name was changed to San Luis Obispo Promenade to reflect the new outdoor orientation, and in January 2000 MBK began tearing down the main portion of the property to build quarters for a new generation of big-box tenants.

Trachman says the developer was confident retailers would be interested. “Some tenants had been looking at San Luis Obispo for a long time but not found opportunities. Others needed to be convinced, but once we showed them the demographics, that wasn't hard,” he says.

The demographics included a high median income, growing population, large student base and high number of visitors, both tourists and day visitors from California's Central Valley. The latter were particularly important because many Central Valley towns are themselves underserved by retail, so their residents could justify a day at the coast by combining it with a pragmatic shopping trip.

There are also several holdovers from the Central Coast Mall, including The Wherehouse (9,500 sq. ft.), Applebees (5,500 sq. ft.) and Taco Bell (4,500 sq. ft.). In addition, Gottschalks was remodeled and expanded to 120,000 sq. ft. from 80,000 sq. ft. and the 196-unit, separately owned Embassy Suites is in the midst of a total makeover.

Since the $25 million, 250,000 sq. ft. project (excluding hotel) opened in late summer 2000, Trachman says it has been performing considerably ahead of expectations. It is fully leased, with the exception of four pads.

Though the hotel did not work as an anchor for the mall, the MBK executive says it serves the revised format extremely well.

“The hotel failed to pull customers to the opposite end of the mall. They had no reason to go there. And it wasn't large enough to provide a reliable customer base. But as a source of additional customers, especially for the restaurants, it makes a great neighbor. And we benefit the hotel by providing amenities for the guests,” he says.

A particular element of pride for MBK was the success in getting community backing. As in many California towns, San Luis Obispo residents champion careful growth and distrust development. Trachman says company officials knew they would have to fight to get entitlements, but they believed the benefits the Promenade would provide would swing community sentiment in their favor.

“It's always challenging in a community that is cynical of development, but in our case we were recycling real estate that had become a blight, versus taking a green field and paving it over,” he says. “We took a dysfunctional mall that wasn't serving anyone and turned it into a vibrant and attractive center.”

The crucial factor in winning local support, he adds, was complementing rather than competing with downtown. “They've got a very successful, attractive and friendly central retail district,” Trachman reiterates. “We had no desire to spoil that with the Promenade, only to fill needs downtown wasn't meeting.”

John McCloud is a San Francisco-based writer.

Gottschalks at a glance

The SLO Promenade's longtime anchor tenant, Gottshalks, began almost 95 years ago as a 10,000-sq.-ft. dry goods store in downtown Fresno, Calif. Since then, the retailer has grown into a chain with 40 department stores and 22 specialty stores throughout California, Nevada, Oregon and Washington. Joe Levey, the company's current chairman, is the grand nephew of founder Emil Gottschalk.

In 1986, the Gottschalks chain became a publicly traded company under the symbol GOT. In 1998, Gottschalks acquired the nine-store, Southern California-based chain of Harris Department Stores. Last year, the retailer acquired the 36-store, Seattle-based Lamonts department store chain, adding stores in three new states including Alaska, Idaho and Utah.

Gottschalks reported more than $500 million in sales for the past year. It is the largest independently owned department store chain based in California.